© SOUTH-WESTERN  12.1 Students understand common terms & concepts and economic reasoning. Standard Address Objectives  Distinguish between productive efficiency and allocative efficiency.  Explain what happens when government imposes price floors and ceilings.  Identify the benefits that consumers and producers get from market exchange.

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CONTEMPORARY ECONOMICS: LESSON 6.33 LESSON 6.3 Market Efficiency and Gains from Exchange  productive efficiency  allocative efficiency  disequilibrium  price floor  price ceiling  consumer surplus Key Terms

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.34 Competition and Efficiency  Productive efficiency  Making stuff right  Allocative efficiency  Making the right stuff

© SOUTH-WESTERN Louis Vuitton vs. Payless CONTEMPORARY ECONOMICS: LESSON 6.35

© SOUTH-WESTERN Model A or Model T CONTEMPORARY ECONOMICS: LESSON 6.36

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.37 Productive Efficiency: Making Stuff Right  Productive efficiency occurs when a firm produces at the lowest possible cost per unit.  Competition ensures that firms produce at the lowest possible cost per unit.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.38 Allocative Efficiency: Making the Right Stuff  Allocative efficiency occurs when firms produce the output that is most valued by consumers.  Competition among sellers encourage producers to supply more of what consumers value the most.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.39 Distinguish between allocative efficiency and productive efficiency. Checkpoint: pg. 180  Productive efficiency occurs when the firm produces at the lowest possible cost per unit.  Allocative efficiency occurs when firms produce the output that is most valued by consumers.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Disequilibrium  Disequilibrium—a mismatch between quantity demanded and quantity supplied as the market seeks equilibrium  Disequilibrium is usually a temporary condition when the plans of buyers do not match the plans of sellers.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Other Sources of Disequilibrium  Government intervention in the market  Sometimes, as a result of government intervention in markets, disequilibrium can last a while.  Sometimes the market takes a while to adjust  New products  Sudden change in demand or supply

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Disequilibrium  A price floor is a minimum selling price that is above the equilibrium price.  To have an impact, a price floor must be set above the equilibrium price.  The Minimum wage is a price floor in the market for labor.  The government sets the minimum labor price and no one is allowed to pay less.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Price Floor  If a price floor is established above the equilibrium price, a permanent surplus results.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Price Floor  A price floor established at or below the equilibrium price has no effect.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Disequilibrium  A price ceiling is a maximum selling price that is below the equilibrium.  To have an impact, a price ceiling must be set below the equilibrium price.  The good intensions of government officials create shortages and surpluses that often are economically wasteful.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Price Ceiling  A price ceiling is established below the equilibrium price, a permanent shortage will result.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Price Ceiling  A price ceiling is established at or above the equilibrium price, has no effect.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON What happens when governments impose price floors and price ceilings?  When governments impose price floors or ceilings:  market prices are distorted and interfere with the market’s ability to allocate resources efficiently.  This results in disequilibrium of the market. Checkpoint: pg. 181

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Consumer Surplus  Consumer surplus - is the difference between the total amount consumers would have been willing and able to pay for that quantity and the total amount they actually do pay.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 6.320

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON An Application of Consumer Surplus: Free Medical Care  Certain Americans are provided government- subsidized medical care.  When something is provided for free, people consume it until their marginal benefit is zero.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON How do consumers benefit from market exchange?  Consumers benefit from market exchange by receiving the goods they demand and want at a price they are willing to pay.  When there is a consumer surplus, consumers pay lower prices than they would have originally been willing to pay. Checkpoint: pg. 183